Some Miami condos’ and their associations are turning to bankruptcy because unpaid association fees mounting, a largely unproven strategy that could bring even more
financial risk.
At least seven Florida and Miami condos associations have filed for bankruptcy since the real estate market took a nose dive and there may be more on the way.
Bankruptcy could be the last defense against their hallways going dark and their spigots running dry, for a growing number of strapped Miami condos’ associations.
The creditors of Maison Grande in Miami Beach are planning to meet Tuesday to discuss the bankruptcy, in one of the most recent Chapter 11 filings.
A rare happening in better days, such filings now are seen as a last resort by associations to protect themselves from bill collectors and find a way out of mounting financial problems.
While an association is in bankruptcy, utilities such as water can not be cut off which are problems that have already surfaced at some Miami condos.
''Without question it's being talked about and asked about,'' said Robert White, a managing director for KW Property Management in Coral Gables, ``especially in some of these associations that have delinquencies that exceed 30%. They're looking for options about how to solve the problem.''
Maison Grande is a complex with 502 luxury Miami condos located at 6039 Collins Avenue that filed for Chapter 11 protection in June after Dorten developers sued the association for about $658,000 in back payments on a recreational lease for the pool and parking areas. Chapter 11 bankruptcy offers private companies protection from creditors while they reorganize their debts, restructure contracts and find new sources of revenue.
Forty-four units are in foreclosure at the Maison Grande, and about 165 owners are two months or more past due on association payments.
Legacy Park town home association in the Central Florida city of Davenport filed for Chapter 11, also last month, Comcast, was among its biggest creditors which says the association owes $105,305 for a past-due cable bill.
Many Miami condos’ associations which are classified as not-for-profit corporations find bills are piling up as units enter foreclosure and homeowners stop paying association fees, putting enormous financial strain on residents left holding the bill.
A RISKY ALTERNATIVE
Filing for bankruptcy is a costly endeavor and may not be a cure. In recent years it's unclear whether any Florida association has successfully reorganized in bankruptcy.
Bankruptcy attorney Thomas Lehman with Tew Cardenas in Miami said he wasn't sure how bankruptcy could benefit associations, because their only assets are the property's common areas and, possibly, their ability to assess individual unit owners.
Lehman said, corporations need an exit strategy when filing Chapter 11. He added it wasn't clear how an association having trouble covering basic monthly services could reorganize. Except common areas such as the lobby and rec room, they also have nothing to sell off.
Lehman said, ''They're better off trying to negotiating with vendors to come up with an out-of-court restructuring plan.''
Last month a Miami bankruptcy court dismissed a bankruptcy petition by View West Condo in Kendall essentially because its creditor, Z Roofing, won a state case upholding its lien and forcing a special assessment on unit owners to pay a balance of more than $100,000 for repairs.
Carla Barrow, an attorney who represented Z Roofing in the matter, ''The thing about a condo association is that often times their main asset is really only their account receivable from unit owners paying maintenance fees or assessments.”
The company also won approval from a state court to foreclose on individual unit owners who failed to pay their share of the assessment.
Barrow said, filing of the petition did little to protect the association because it still owed the roofing company for the work. Not to mention $50,000 in legal fees and court costs owed to its own attorney.
PUNISHING THE PAYERS
Lisa Magill, an attorney with condo firm Becker & Poliakoff, said a high rate of fee delinquencies could make that less of an issue while a condo association's ability to repay creditors by levying special assessments could be a stumbling block.
''If you have nonpayers and those who are paying don't have the ability to pay more and you have a signification number of owners that have abandoned the property, your ability to levy assessments is limited,'' Magill said. There comes a point when paying owners may also throw in the towel and stop payments if their assessments rise too much.
Despite the potential pitfalls, Magill said there are benefits to be gained by filing.
Like the one burdening Maison Grande, bankruptcy protection allows debtors to renegotiate burdensome leases. It could also delay, and even prevent, creditors from seizing assets and garnishing bank accounts.
Robert Kaye, a partner with Kaye & Bender law firm in Fort Lauderdale, which represents close to 700 homeowner associations says utility companies and other vendors would have to get court permission to drop services.
Residents of St. Andrews condo in Miramar decided against filing bankruptcy earlier this year after several months of investigating the matter. Even though nearly half its unit owners at the time were in foreclosure and the association had fallen behind on several bills.
William Quigley, who served on his association's budget advisory committee, said the association determined that filing for bankruptcy would cost more money that it would save. They were told, not to mention costs going forward, it would cost about $30,000 to pay lawyers just to file the petition.
''Now you are going to have to assess the community to file rather than working out what you owe to your vendors,'' Quigley said.
The association in the end decided to level with vendors and find ways to begin slowly paying off past due balances.
Contributed by MLR Realty
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